UK: Entrepreneurial Business Bulletin - Budget 2011 - If It Counts, It's Covered

Last Updated: 24 March 2011
Article by Deloitte Tax Group

Most Read Contributor in UK, August 2017

1.1 Introduction

For detailed coverage and comment on the Budget visit Deloitte's dedicated website at

The Chancellor, George Osbourne, gave his second Budget speech today to say that whilst it was not a tax raising budget, 'nor can we afford a giveaway'. The emphasis of his speech was on encouraging growth for entrepreneurs and for the private sector in general and this was reflected in announced tax measures and in the creation of 21 new Enterprise Zones, 40,000 new apprenticeships and 100,000 new work experience placements.

1.2 Personal and Employment Taxes

1.2.1 50% here to stay...for now

There was no change to current income tax rates, meaning that the highest income tax rate of 50% remains in place. However, the Chancellor made it clear that he regards the rate as temporary and intends to review the revenue generated when income tax returns are filed in January 2012.

The Government intends to consult on merging the operation of income tax and national insurance contributions ("NIC") although it was recognised that it may be several years before this takes effect as there are a number of issues that would need to be resolved including what would happen with employer's NIC. The Chancellor emphasised that the intention was not to increase taxes, but to simplify the system and said that no move would be made to extend the application of NIC to pensions or other sources of income.

1.2.2 Entrepreneurs' Relief

The lifetime limit for gains qualifying for Entrepreneurs' Relief will be doubled to £10m from 6 April 2011. This relief, which results in "qualifying gains" up to the lifetime limit being taxed at a rate of 10% (as opposed to the normal capital gains tax rate of up to 28%), allows a total potential tax saving of £1.8m per person.

1.2.3 Tax Efficient Investments – Enterprise Investment Scheme ('EIS') and Venture Capital Trusts ('VCTs')

From 6 April 2011 the income tax relief available on the subscription of EIS qualifying shares will increase from 20% to 30%. From 6 April 2012, it is proposed that the maximum investment on which an individual can claim annual relief will increase from £500,000 to £1m. It is also proposed that the current EIS and VCT limits for the investee company will increase from 6 April 2012 such that the employee limit will rise from 50 to 250, the gross assets test will increase from £7m pre-investment to £15m, and the maximum annual total investment into a qualifying company will be £10m.

It also been announced that the widening of the territorial scope for qualifying EIS companies brought in by Finance Act 2010 will come into effect from 6 April 2011.

1.2.4 Taxation of non-UK domiciliaries and Residence

The Government has announced that it will increase the existing £30,000 annual remittance basis charge to £50,000 for non-domiciled individuals who have been UK resident for twelve or more years. The £30,000 charge will be retained for those who have been resident for at least seven years but less than twelve years.

The Government has also announced that it intends to remove the tax charge when non-domiciled individuals remit foreign income or capital gains to the UK for the purpose of commercial investment in UK businesses.

The Government will consult on the detail in June and the changes are intended to take effect from April 2012.

The Chancellor also noted that no further substantive changes will be made to the taxation of non-UK domiciliaries during this parliament.

The Government also intends to consult on the introduction of a statutory definition of residence.

1.3 Business Taxes

1.3.1 Corporation Tax

The main rate of UK corporation tax will fall faster and further than previously announced - to 26% from April 2011 and in 1% increments to 23% from April 2014. The 23% rate will give the UK the lowest rate in the G7 and could make hybrid business structures, such as corporate members of LLPs, more attractive.

No additional changes were announced to the small profits rate which will reduce from 21% to 20% on 1 April 2011, as previously announced.

1.3.2 Capital Allowances

It is possible to elect for certain assets qualifying for capital allowances to have 'short life asset' treatment such that if they are sold or scrapped within four years the total allowance given over the period of ownership equals the net cost of the asset to the business. It is proposed that this period be extended to eight years in respect of expenditure incurred on or after 1 April 2011 for corporation tax purposes and on or after 6 April 2011 for income tax purposes.

1.3.3 Enterprise Zones

21 Enterprise Zones will be created, with simplified planning rules, superfast broadband and tax breaks for businesses, including exemption from business rates for five years for businesses moving into an enterprise zone and the possible introduction of enhanced capital allowances for businesses where there is a strong focus on manufacturing.

1.3.4 Research and Development

From 1 April 2011, small and medium sized enterprises will receive an additional deduction of 100% (up from 75%) on qualifying R&D expenditure, giving a total deduction of 200%. From 1 April 2012 the deduction will increase yet further to give a total deduction of 225%.

R&D expenditure is broadly any activity which contributes to the resolution of scientific or technological uncertainty or seeks a scientific or technological advance, and can be surprisingly wide ranging. In addition, the Government are considering abolishing the PAYE limit on the cash back available from surrendering losses to HMRC from April 2012.

1.4 Anti-Avoidance Measures

1.4.1 Disguised Remuneration

Although this merited mention in the Chancellor's speech, there have been no significant changes and there has been no new legislation published today. The Treasury has announced that amended legislation will be introduced in the Finance Bill 2011 which reflects the 'concerns that the legislation (i.e. the draft legislation published last December) was broad and that arrangements which were outside the scope of the policy intention were inadvertently caught'.

1.4.2 Targeted Schemes

It was announced that measures will be introduced to counteract certain specific tax avoidance schemes. Please see Deloitte's dedicated Budget website for more detail.

1.5 Administration

1.5.1 Time to Pay

It was confirmed that HMRC will continue, through its Business Payment Support Service, to provide advice and time to pay any HMRC taxes, including VAT, corporation tax, income tax and NICs (PAYE). The taxpayer will be required to evidence that they are experiencing genuine but short-term difficulties in paying their tax.

1.5.2 IR35

Following the publication of the Office of Tax Simplification's review of small business tax, the Government has decided to retain IR35, but introduce improvements to the administration. This will include a dedicated helpline.

1.5.3 Audit Exemption

Changes will be made to Companies Act 2006 to bring the regulations relating to small company audit exemptions into line with the 4th EU Directive meaning more UK companies will be able to take advantage of the exemption. It will apply to companies who do not exceed the limits of two of the following three criteria at the balance sheet date: balance sheet total: €4.4m; net turnover; €8.8m; average number of employees during the financial year: 50

1.5.4 VAT thresholds and online registration

The VAT registration threshold has been increased from £70,000 to £73,000. The deregistration threshold has been increased from £68,000 to £71,000. The new thresholds apply from 1 April 2011. Subject to consultation, online registration and deregistration will be compulsory from 1 August 2012. In addition, subject to consultation, the registration threshold will be removed for businesses not established in the UK, meaning that these businesses will be required to register for UK VAT regardless of their level of taxable supplies. The Government will consult on these measures later in the year.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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